U.S. trade officials step into Fellowes' spat with China

(Crain's) — Concerns raised over a Chinese joint venture that went sour for Itasca-based Fellowes Inc. last year could become Exhibit A in a major trade dispute developing between the U.S. and China.

CEO James Fellowes alleges his Chinese partner stole machine tools and custom plastic-molding equipment owned by Fellowes to make paper shredders, after his Chinese counterpart seized control of the joint venture, stopped shipments and forced it into bankruptcy. The dispute is still pending in a Chinese court.

Representatives of the Commerce and State departments are “engaging intensively” with Chinese officials at the local and national levels to help Fellowes, Commerce Secretary Gary Locke said in a letter to U.S. Sen. Richard Durbin, D-Ill., who asked him in late March to intervene.

“We have made the Chinese authorities aware of the impact this case could have on the investment climate of China, and Jiangsu Province in particular, and the importance the U.S. government places on ensuring fair, open and speedy resolutions of this and other commercial disputes,” the Commerce secretary said in the letter, dated April 21 and released Tuesday by the senator’s office.

Mr. Locke’s interest in the case is especially significant because he has been nominated to be the next ambassador to China. In a speech Tuesday in Washington, D.C., he said that Chinese investment in the U.S. is a “good thing” because it creates jobs.

"Unfortunately, that is not the case for American companies operating in China, where they are frequently shut out of entire industries, or they are forced to give up propriety information as a condition of operating in China," Mr. Locke said.

"This imbalance of opportunity is a major barrier to continued improvement of the United States and China's commercial relationship. And it is part of a broader trend of China recently narrowing its commercial environment after a long and fruitful period of opening."

Fellowes started making inexpensive shredders in China in 1998, outsourcing production to two firms owned by a family named Zhou. To expand capacity, in 2006 it formed a 50-50 joint venture with Jiangsu Shinri Machinery Co. Ltd., part of a large holding company owned by the Zhou family. By 2009, the joint venture had grown to about a fourth of Fellowes’ approximately $639 million in sales, with about 120 suppliers and 1,600 employees, more than half of its worldwide workforce at the time.

“Secretary Locke clearly understands the issues facing American investors,” Mr. Fellowes said in an email.

While Fellowes still expects to prevail in court and reclaim its tools, the firm had to “build all-new tools since the shutdown to ensure that it would be back in business on these affected products as soon as possible,” he added. “Fellowes expects to have the heart of its product line back on retail shelves and in office products catalogues by the end of the year.”